The WFE published a statement entitled ‘Financial Stability through International Regulatory Coherence’, which discusses cross-border fragmentation arising from unjustified dissonance between jurisdictions’ financial services regimes.
Promoting international regulatory coherence is a strategic priority for the Federation. The WFE’s statement comes days before the G20 Finance Ministers and Central Bank Governors Meeting (8-9 June, Fukuoka), where market fragmentation will form a key part of the agenda. The paper is intended to encourage progress in this area and help shape thinking about solutions. It makes a call to G20 members to enhance transparency, engagement, and accountability via international standard setting bodies, as a means of creating more robust mechanisms to achieve international regulatory coherence.
Specifically the WFE proposes the G20 takes the following actions:
- Enshrining transparency and due process in an international agreement with a commitment to overcoming international regulatory divergence, avoiding regulatory competition, and censuring politically motivated dissonance;
- Creating flexible new mechanisms for the escalation and resolution of regulatory dissonance;
- Embedding international regulatory coherence in the mandates of national authorities;
- Reporting by ISSBs on addressing financial market fragmentation; and
- Enhancing dialogue between international standards setters, national policymakers, stakeholder groups and civil society through a structured framework.
The WFE's statement, which follows on from its November 2017 paper on international regulatory dissonance, can be summarised as follows:
- International regulatory fragmentation adds costs, slows innovation, impedes competition, and reduces choice and risk diversification for investors. It may also lessen the resilience of financial markets as a whole, by reducing the scope for risk diversification.
- It is right that jurisdictions manage risks through rules tailored to their local financial system; however, the means of doing this tailoring should be consistent with agreed global frameworks.
- Cross-border regulatory co-ordination and deference to comparable standards improves supervision and reduces systemic risk.
- Crypto assets are an area that would benefit from forward-looking international regulatory standards, to promote investor protection and reduce the possibility of regulatory arbitrage.